Freddie Mac Streamlined Modification
December 14, 2016 – In Single-Family Seller/Servicer Guide (Guide) Bulletin 2016-22, we announced the new Freddie Mac Flex Modification, which is designed to offer you an easier, flexible way of helping more borrowers qualify for a loan modification in a changing housing environment. Please visit Freddie Mac's new Freddie Mac Flex Modification webpage for modification information and reminders.
The Freddie Mac Streamlined Modification (Streamlined Modification) provides a modification opportunity to severely delinquent borrowers without the need to submit a Borrower Response Package.
The Streamlined Modification offers the same modification terms and Servicer incentives as the Freddie Mac Standard Modification. However, Streamlined Modification is an initiative intended for borrowers who are at least 90 days delinquent on their mortgage payments, has slightly different eligibility/ineligibility requirements, and offers a faster modification process. Borrowers with Step-Rate Mortgages who become 60 days delinquent within 12 months following the first payment due date resulting from an interest rate adjustment are also eligible.
The Streamlined Modification requires Servicers to identify the population of eligible borrowers and to send eligible borrowers a Streamlined Modification solicitation letter and Streamlined Modification Trial Period Plan Notice. Upon receiving the solicitation letter, the borrower can simply submit the modified payment to begin the trial period. Borrowers who successfully complete the trial period plan may enter into a permanent modification.
For more information, see Single-Family Seller/Servicer Guide (Guide) Chapter 9204, Workout Options.
Mortgage and Borrower Eligibility
Eligible Property Types
The following property types are eligible for the Streamlined Modification:
- A primary residence, second home or an investment property (i.e., owner-occupied or non-owner-occupied).
- Vacant properties, including condemned properties.
Borrowers may be eligible for this modification if they meet the following requirements:
- The borrower must be at least 90 days delinquent.
- The borrower has a Step-Rate Mortgage and becomes 60 days delinquent within 12 months after the first payment due date following an interest-rate adjustment.
- The mortgage originated at least 12 months prior to the evaluation date for the modification.
- The principal and interest (P&I) payment must be less than or equal to the current contractual P&I payment. Refer to Guide Section 9206.5 and 9206.10 for additional payment reduction requirements that may apply.
- The mortgage is a conventional first-lien mortgage currently owned, guaranteed, or securitized by Freddie Mac.
- The borrower is not deemed ineligible based on the exclusions listed in Guide Section 9206.3.
*Refer to Guide section 9206.3(f) for eligibility requirements for borrowers who were current or less than 31 days delinquent at the time of an Eligible Disaster.
Solicitation and Documentation
Servicers may immediately offer eligible borrowers a Streamlined Modification. Servicers must evaluate any borrower who is at least 90 days delinquent but not more than 720 days delinquent for a Streamlined Modification if:
- The Servicer has not received a complete Borrower Response Package prior to the 90th day of delinquency.
- The Servicer previously conducted an evaluation of a complete Borrower Response Package and determined the borrower was not eligible for any alternative to foreclosure.
- The borrower has rejected all other alternatives to foreclosure offered by the Servicer.
- The Servicer has received a completed Borrower Response Package but has not completed an evaluation of the package by the date a Streamlined Modification solicitation will be sent to the borrower.
If a borrower is eligible, the Servicer must send a Streamlined Modification solicitation letter and a Streamlined Modification Trial Period Plan Notice. Freddie Mac offers the following templates of the letter and notice that include the level of specificity that Freddie Mac expects.
Solicitation Letter Templates
- Guide Exhibit 1191, Streamlined Modification Solicitation Letter
- Guide Exhibit 1191A, Streamlined Modification Post-Disaster Forbearance Solicitation Letter
- Guide Exhibit 1191B, Streamlined Modification Solicitation Letter for Day 60 Rate Reset
Trial Period Documents
- Streamlined Modification Trial Period Plan Notice, located in Guide Exhibit 93, Evaluation Model Clauses
Servicers that choose to use these templates are required to modify them as necessary to comply with applicable law and to address other unique situations of certain borrowers, such as the inclusion or exclusion of certain escrow language. The notice will include key terms, including rate, term, and forbearance.
Eligible borrowers are not required to complete a Borrower Response Package, and the Servicer is not required to verify or document the borrower's income or an eligible hardship. Borrowers who successfully complete a trial period plan will enter into a permanent modification.
Step-Rate Mortgages: At least one solicitation is required for those borrowers who become greater than 60 days delinquent, and must include the Streamlined Modification Solicitation Letter and the Streamlined Modification Trial Period Plan Notice (modified as necessary) no later than 15 days after the eligibility evaluation.
Servicers may continue to evaluate and solicit eligible borrowers for a Streamlined Modification after sending the initial solicitation; however, Servicers may not send a Streamlined Modification trail period plan notice to a borrower who is 720 days or more delinquent as of the Servicer's last evaluation date.
Servicers must stop solicitation attempts 60 days prior to the foreclosure sale date for a judicial foreclosure and 30 days prior to the foreclosure sale date for non-judicial foreclosures.
Refer to Guide Section 9102.5 & 9201.2, Evaluation Hierarchy, Borrower Solicitation and Communication, for complete borrower solicitation requirements.
The Servicer must first determine the post-modified mark-to-market loan-to-value (MTMLTV) ratio of the mortgage in order to determine the terms of the modification.
For mortgages with a post-modified MTMLTV ratio equal to or greater than 80%:
- Capitalize the arrearages in accordance with Guide Section 9206.15, Expenses, Delinquent Amounts, and Capitalization Rules.
- Adjust the interest rate to the fixed rate published on the Freddie Mac Standard Modification Interest Rate Web page that is in effect on the date of the borrower's evaluation.
- Extend the amortization term to 480 months from the modification effective date.
- If the post-modified MTMLTV ratio (which includes capitalized amounts) is greater than 115 percent, forbear the principal to create a post-modification interest-bearing MTMLTV ratio of 115 percent or forebear 30 percent of the post-capitalized UPB and capitalized arrearages – whichever forbearance amount is less.
For mortgages with a post-modified MTMLTV ratio that is less than 80%:
- Servicers must determine the amortization term options to be included in the Trial Period Plan Notice by calculating the estimated modified principal and interest payment using a 480-month term, a 360-month term, and a 240-month term, provided certain payment reduction conditions are met. See Guide Chapter 9206.10, Determining the Terms of a Freddie Mac Standard Modification and Freddie Mac Streamlined Modification, for additional details.
Servicers must use Workout Prospector to evaluate borrowers for the Streamlined Modification, unless otherwise indicated by Freddie Mac.
Reporting and Incentives
Electronic Default Reporting (EDR)
By the third business day of each month, Servicers must report the following applicable EDR default action codes for the previous month's Streamlined Modification activity:
- TM – "Modification Trial Period": Report default action code TM to notify Freddie Mac that the borrower has entered into a Trial Period for the Streamlined Modification as described in Guide Section 9206.3. Servicers must report this code along with the Trial Period Plan Effective Date each month during the Trial Period.
- HD – "Modification in Review": To report that the borrower is being evaluated for a Streamlined Modification. Servicers are required to report this code along with the date they begin reviewing the loan. Servicers will only do this one time in the month following the month in which the event took place.
- HE – "Ineligible for Modification": To report that the borrower is ineligible for a Streamlined Modification. Servicers are required to report this code along with the date they made the decision. Servicers will only do this one time in the month following the month in which the event took place.
Servicers will receive incentives for successfully settled Streamlined Modifications based on the term of delinquency when the trial period plan starts:
- $1,600 for each Streamlined Modification that is less than or equal to 120 days delinquent (less than or equal to 150 days from the due date of last paid installment [DDLPI])
- $1,200 for each Streamlined Modification that is 121-210 days delinquent (151-240 days from DDLPI)
- $400 for each Streamlined Modification that is greater than 210 days delinquent (greater than 240 days from DDLPI)
Servicers are required to settle a Streamlined Modification successfully by complying with all eligibility, underwriting, documentation, closing, and reporting requirements, including submitting accurate closing data to Freddie Mac, within two months after the trial period ends to be eligible to receive the financial incentives.
- Servicing Alignment Initiative
- Disaster Relief Policies
- Automated Valuation Model Collateral Values report available on the HAMP Web page – Login Required
- Freddie Mac Streamlined Modification webinar - available through the Learning Center